Understanding windfall tax and its possible role in achieving SDGs
Global Governance Initiative
Impact MBA Scholars, Fellowship to build a career in Management Consulting, Public Policy and Product Management
1. Introduction
The?after-effects?of?the?COVID-19?pandemic?and?international?political?troubles?have?been?making?headlines,?drawing?attention?towards?the?struggles?being?faced?by?the?economy?anddifferent?communities?and?groups?in?the?society.?Juxtaposed?with?this?scenario?are?corporations?in?sectors?like?energy,?food,?and?pharmaceuticals?who?have?been?raking?in?record-high?profits?owing?to?these?exceptional?circumstances.?Oxfam?research?shows?that?the?profits?of?food?and?energy?billionaires?have?risen?by?$452?billion?in?the?last?two?years?–?equivalent?to?$1?billion?every?two?days.
Energy?companies?in?particular?have?earned?super?normal?profits?owing?to?the?energy?price-rise?emerging?due?to?the?2022?Russia-Ukraine?crisis,?with?five?of?the?largest?energy?companies?(BP,?Shell,?Total?Energies,?Exxon?and?Chevron)?making?a?profit?of?$2600?every?second.?These?record?windfall?gains?have?led?to?multiple?countries?like?India,?Italy,?the?United?Kingdom,?etc.?to?impose?a?windfall?tax?on?the?energy?sector.
This?paper?details?the?concept?and?rationale?behind?imposing?windfall?taxes?and?maps?the?current?scenario?globally,?with?a?focus?on?India.?The?paper?also?attempts?to?understand?the?possible?role?of?windfall?taxes?in?helping?countries?in?achieving?Sustainable?Development?Goals?(SDGs),?along?with?the?prospective?challenges.
2. Concept – What is a windfall tax?
A?windfall?tax?can?be?defined?as?a?higher?tax?rate?on?above?average?profits?that?result?from?asudden?windfall?gain?to?a?particular?company?or?industry?due?to?external?and?exceptional?event?(s).?These?are?profits?that?cannot?be?attributed?to?something?the?firm?actively?did,?like?an?investment?strategy?or?an?expansion?of?business.?It?is?often?due?to?unusual?spikes?in?demand?and/or?interruptions?to?supply?created?due?to?geo-political?disturbances,?war,?or?natural?disaster.
In?the?current?scenario,?the?energy?sector?is?benefitting?from?a?one-off?external?situation?–?the?Russia-Ukraine?crisis?–?that?they?were?not?responsible?for?and?were?able?to?make?windfall?profits?from.?A?windfall?tax?will?tax?these?profits?separately,?over?and?above?the?normal?taxes?that?these?companies?pay?to?the?government.
Windfall?tax?is?not?a?new?concept?and?has?been?employed?as?a?fiscal?measure?in?the?past?by?various?governments?as?a?result?of?dramatic?increases?in?prices?and?profits?in?industries,?specifically?in?oil?markets?where?price?fluctuations?lead?to?volatile?or?erratic?profits?for?the?industry.?Some?notable?instances?include?the?1970s?OPEC?oil?embargo?and?the?Persian?Gulf?wars.?Another?example?is?of?the?UK?Conservative?Party?leader?Margaret?Thatcher?imposing?an?extraordinary?levy?on?the?windfall?profits?of?banks?in?1981?that?were?making?large?margins?on?their?loans?due?to?very?high-interest?rates.
3. Rationale – why is a windfall tax levied?
The?primary?rationale?behind?the?concept?of?windfall?taxes?is?to?capture?above-averageprofits?from?players?who?earned?them,?perhaps?inadvertently,?at?the?cost?of?others?toreinstate?equilibrium?in?the?economy?through?fiscal?or?policy?measures.
Commodity?prices?for?coal,?oil,?and?natural?gas?have?increased?sharply?during?2022,?although?prices?have?retreated?somewhat?more?recently.?This?increase?in?price?stems?from?multiple?factors,?key?to?which?is?a?mismatch?between?energy?demand?and?supply?during?theeconomic?recovery?from?COVID-19,?which?is?further?amplified?by?the?Russia-Ukraine?crisis.While?this?surge?in?prices?has?boosted?profits?for?the?energy?sector,?it?has?also?led?to?an?increasing?pressure?on?households?and?businesses?in?multiple?parts?of?the?world.?The?need?to?alleviate?this?pressure?has?sparked?renewed?policy?interest?internationally?in?the?taxationof?windfall?profits?in?the?energy?sector?as?a?means?for?raising?revenue?and?providing?support?to?the?affected?masses.Oxfam?has?calculated?that?1000?of?the?world’s?biggest?companies?have?recorded?excess?profits?of?1.15?trillion?dollars?compared?to?the?pre-pandemic?period.?This?is?an?increase?of?68.5?percent,?with?the?largest?share?going?to?the?financial,?energy,?and?pharmaceutical?sectors.?Billionaires’?wealth?has?risen?more?since?COVID-19?began?than?it?has?in?the?last?14?years?put?together?and?there?are?600?more?billionaires?today?compared?to?the?pre-pandemic?period.?At?the?same?time,?263?million?more?people?could?be?pushed?into?extreme?poverty?in?2022,?compared?to?pre-pandemic?projections,?due?to?the?combined?impact?of?COVID-19,?inequality?and?food?and?energy?price?inflation?–?accelerated?by?the?war?in?Ukraine.?Inflation?has?reached?its?highest?peak?since?2008?globally?with?low-income?countries?and?the?poorest?hit?the?hardest.?A?tax?on?the?excess?profits?of?big?corporations?in?periods?of?crisis?like?the?pandemic?and?the?current?energy?and?food?crisis?is?not?only?fair?but?generates?revenue?for?the?governments?that?can?be?used?for?social?welfare?schemes,?redistribution?of?gains,?assist?in?reducing?the?trade?deficit,?etc.
Some of the key rationales for governments to impose windfall taxes globally include:
3.1. Redistribution of gains:
Windfall?tax?can?help?in?redistribution?of?the?unexpected?gains?by?shifting?profits?from?the?companies?who?are?profiteering?off?the?global?crises?to?ordinary?people?who?are?facing?an?increase?in?the?cost-of-living.?Windfall?taxes?ensure?that?no?company?can?profit?excessively?from?a?period?of?immense?economic?and?human?suffering.
3.2. Funding social welfare schemes:
In?addition?to?utilising?funds?to?recompense?people?directly?affected?by?the?crises?in?thecountry,?the?government?can?also,?based?on?the?corpus?collected,?fund?social?welfareschemes?and?launch?new?programmes?to?benefit?the?citizens.
3.3. Supplementary revenue stream for the government:
A?well-designed?tax?can?provide?government?with?additional?stream?of?revenue?withoutdistorting?investment?and?production?decisions.?It?can?also?assist?in?reduction?of?acountry’s?trade?deficit.
4. Possible challenges
4.1.?Uncertainty?in?the?system:
Since?windfall?taxes?are?influenced?by?unexpected?events,?they?can?create?uncertainty?in?thesystem?which?may?discourage?capital?investments?by?investors?and?companies.?Additionally,?this?challenge?can?be?exacerbated?with?the?possibility?of?the?tax?being?implemented?retrospectively,?i.e.,?taxes?are?imposed?on?transactions?prior?to?the?date?of?amendment.
4.2.?Lack?of?clarity?:
Situations?where?the?duration?of?the?windfall?taxes?and?applicability?of?the?given?terms?isnot?specified?can?create?confusion?for?businesses?and?investors?and?further?impact?theirdecision?making?and?future?investments.
4.3.?Difficulty?in?defining?windfall?profits?:
In?some?situations,?it?can?be?difficult?to?distinguish?between?windfall?profits?and?profits?which?are?above-average?are?considered?normal.?For?this?purpose,?it?becomes?essential?to?lay?down?what?constitutes?true?windfall?profits?and?how?it?can?be?determined?what?profit?is?normal?or?excessive.
5. Indian Scenario
5.1. Background
Following?the?Russia-Ukraine?crisis,?crude?oil?prices?increased?exceptionally?leading?to?the?country’s?oil?companies?raking?in?super?normal?profits.?The?three?upstream?oil?companies?i.e.,?ONGC,?Oil?India,?and?GAIL?declared?all-time?high?net?profits?in?the?fiscal?year?2022?when?the?international?prices?soared?to?a?near?14-year?high?owing?to?the?conflict.?ONGC?declared?a?record?net?profit?of?INR?40,305?crore?in?the?fiscal?year?ended?March?31?(258%?increase?from?previous?year’s?net?profits).?Similarly,?Indian?Oil?Corporation?declared?the?highest?ever?revenue?by?an?Indian?corporate?at?INR?7.28?lakh?crore?in?the?fiscal?financial?year?2021-22.
With?many?refiners?making?major?gains?through?fuel?exports?to?countries?in?oil-deficit?and?preferring?exports?over?domestic?supplies,?the?government?decided?to?impose?windfall?taxes?and?duties?to?keep?a?check?on?the?constant?supply?of?crude?oil?in?the?domestic?market.The?government?mandated?oil?exporters?to?fulfil?the?Indian?domestic?oil?demand?first?and?levied?windfall?taxes?on?exports?which?indirectly?makes?exporting?oil?more?expensive.?Further,?with?India’s?economy?struggling?with?an?incredibly?high?current?account?deficit?(CAD)?and?weakening?rupee?increasing?the?value?of?imports,?the?windfall?taxes?would?provide?an?additional?stream?of?income?and?assist?the?government?in?bridging?this?gap.
5.2. Approach
India?imposed?a?windfall?tax?on?oil?producers?in?July?2022?which?would?be?reviewed?fortnightly.?Duties?were?imposed?on?the?export?of?petrol,?diesel?and?jet?fuel?(ATF),?along?with?a?special?additional?excise?duty?(SAED)?levied?on?locally?produced?crude?oil.?The?government?also?mandated?that?Indian?exporters?would?have?to?sell?50?per?cent?of?petrol?and?30?per?cent?of?diesel?in?the?domestic?market?on?total?shipping?bill.?The?tax?shall?be?applicable?to?special?economic?zones?(SEZ)?and?export-oriented?units?(EOU)?as?well.
On?July?1?2022,?a?tax?of?Rs?23,250?per?tonne?was?imposed?on?the?sale?of?domestic?crude?alongwith?an?export?duty?of?INR?6?per?litre?on?petrol?and?Aviation?Turbine?Fuel?(ATF)?and?INR?13?per?litre?on?diesel.?The?following?rates?were?then?revised?fortnightly?bases?on?global?oil?and?product?price?movements.
By?mid-July,?with?international?oil?prices?softening,?the?windfall?taxes?were?revised?and?brought?down?to?INR?17,000?per?tonne?on?production?of?crude?oil?came?down?from?to?Rs?17,000?per?tonne.?Tax?on?petrol?exports?was?scrapped.?Tax?on?ATF?exports?came?down?Rs?4?per?litre?and?on?diesel?exports?reduced?to?Rs?11?per?litre.?Consequently,?rates?were?revised?based?on?hikes?and?softening?of?the?international?prices.?Most?recently,?the?tax?on?production?of?crude?oil?was?INR?11,000?per?tonne.?The?tax?on?ATF?exports?were?reinstated?to?INR?3.5?per?litre?and?on?diesel?exports?was?INR?12?per?litre.?The?table?below?indicates?the?revised?tax?rates?since?the?implementation?of?the?windfall?taxes.
5.3. Impact
If?the?taxes?are?continued?for?the?full?year,?the?windfall?tax?on?crude?production?was?estimated?to?generate?a?revenue?of?INR?65,600?crore?and?tax?on?export?products?INR?52,700?crore.?As?per?reports,?the?tax?on?crude?oil?could?provide?the?government?with?over?INR?7,000?crore?annually?on?domestic?production?of?30?million?tonnes?of?crude?oil.
While?the?measure?is?slated?to?benefit?the?government?coffers,?a?report?by?Morgan?Stanley?said?that?a?higher?cess?on?domestic?crude?production?for?ONGC?and?OIL?was?a?negative?surprise?and?could?also?imply?downside?risks?to?earnings?for?the?sector?over?the?medium?term,?impacting?the?earnings?of?ONGC?and?Oil?India?by?36%?and?24%?respectively.?As?per?Kotak?Institutional?Equities,?the?indefinite?period?of?the?new?taxes?could?create?uncertainty?about?government?revenues?and?companies’?earnings.?Additionally,?with?the?imposition?of?exports?taxes?on?SEZ?units,?there?might?be?tax?uncertainty?on?future?investments.
6. Global Scenario
Economies?globally?have?been?affected?by?the?pandemic?and?the?inflation?crisis?caused?by?the?Russian-Ukraine?crisis?which?has?led?to?multiple?countries?being?in?favour?of?taxing?excess?profits.?Economists?like?the?Nobel-Award?winning?Joseph?Stiglitz?and?international?organisations?like?the?United?Nations?(UN)?and?International?Monetary?Fund?(IMF)?have?called?for?a?windfall?tax.?As?discussed?in?detail?in?the?previous?section,?India?has?taken?the?plunge?as?well?and?has?imposed?windfall?taxes?on?its?oil?producers.?Across?the?world,?many?countries?are?taking?steps?to?implement?windfall?taxes?and?have?introduced?or?announced?new?taxes?or?other?fiscal?mechanisms?to?capture?windfall?profits.
Recently,?the?European?Commission?(EU)?has?proposed?and?agreed?upon?a?package?of?emergency?measures?to?curb?the?rise?in?energy?prices.?The?measures?can?be?termed?as?windfall?taxes?in?practice,?but?not?in?name.?These?measures?are?discussed?in?detail?in?further?sections.
Italy?was?one?of?the?first?countries?to?introduce?windfall?taxes?in?March?wherein?a?one-time?tax?of?25%?(initially?10%)?was?imposed?on?energy?companies.?This?includes?producers?and?sellers?of?electricity,?natural?gas,?and?petroleum?products.?The?tax?applies?to?company?profits?that?rose?more?than?€5?million?between?October?2021?and?April?2022?compared?with?the?same?period?in?the?previous?year.?Greece?imposed?a?90%?levy?on?the?windfall?profits?earned?by?domestic?power?producers?for?the?period?October?2021-March?2022.
The?United?Kingdom?introduced?its?energy?profits?levy?with?a?sunset?clause?of?2025?whereinan?additional?25%?tax?shall?be?imposed?on?oil?and?gas?profits?on?top?of?existing?taxes.?The?case?for?the?United?Kingdom?is?discussed?in?further?detail?in?the?upcoming?section.
Some?other?countries?did?not?only?target?the?energy?sector?but?also?additional?sectors?like?banking,?telecom,?etc.?Hungary?announced?a?temporary?windfall?tax?for?2022?and?2023?on?the?extra-profits?from?energy?companies ?wherein?the?tax?applies?on?the?revenue?generatedfrom?the?difference?between?world?market?oil?prices?and?actual?prices?paid?on?imports?of?oil?products?from?Russia?with?a?40%?tax?rate?(the?rate?was?25%?until?the?end?of?July?2022).?Taxes?are?also?imposed?on?the?banking?sector?(8/10%),?telecom?sector?(7%),?and?the?retail?sector?(4.1%).?Spain?announced?its?windfall?profits?tax?for?extraordinary?profits?earned?in?2022?and?2023?by?electricity?utility?companies?(1.2%?tax?on?power?utilities'?sales)?and?the?banking?sector?(4.8%?on?bank's?net?interest?income?and?net?commissions).?They?are?currently?assessing?whether?to?extend?the?windfall?taxes?beyond?two?years.
Romania?introduced?an?80?percent?windfall?profits?tax?on?additional?revenue?realised?by?electricity?producers?calculated?on?the?monthly?difference?between?the?average?selling?price?and?450?lei?per?megawatt?hour.?The?tax?was?subsequently?modified?to?apply?to?net?revenue,?taking?account?of?costs.?The?government?also?adjusted?the?fiscal?regime?for?naturalgas,?introducing?a?progressive?tax?of?15?percent?to?70?percent?on?additional?income?on?gas?prices?above?85?lei?(about?$18)?per?megawatt?hour.?Countries?including?Belgium,?Germany?and?the?Netherlands?are?considering?introducing?windfall?taxes?soon?as?well?with?discussions?and?planning?underway.
7. Achieving SDGs – role of windfall tax
Addressing?world?leaders?at?the?UN?General?Assembly,?UN?Secretary?General,?António?Guterres?urged?countries,?especially?rich?countries,?to?tax?windfall?profits?of?fossil?fuel?companies?to?help?countries?harmed?by?the?climate?crisis?and?people?who?are?struggling?with?rising?food?and?energy?prices.
Oxfam?research?shows?that?90?percent?windfall?tax?on?the?excess?profits?made?by?G7’s?largest?corporations?during?the?pandemic?could?generate?almost?$430?billion.?This?could?fully?fund?the?shortfalls?on?all?existing?humanitarian?appeals?and?a?10-year?plan?to?end?hunger,?while?also?raising?enough?for?a?one-off?payment?of?over?$3,000?to?the?poorest?10?percent?of?the?population?of?the?G7?countries,?to?help?cover?the?rising?cost?of?living.?According?to?another?analysis,?a?10?percent?tax?rate?on?windfall?profits?in?2020?in?the?EU?would?have?generated?4.8?billion?euros.?If?the?rate?was?at?70?percent,?the?figure?would?be?up?to?35?billion?euros!
A?major?reason?behind?well-intentioned?programmes?designed?to?achieve?SDGs?is?lack?of?funding?at?a?national?and?international?level.?Windfall?taxes?provide?a?mechanism?to?yield?massive?funding?which?can?be?used?to?help?tackle?the?biggest?challenges?of?our?time,?both?inthe?short?and?long?term?and?help?in?achieving?the?sustainable?development?goals?(SDGs).
While?the?resources?yielded?through?the?medium?of?windfall?taxes?shall?indirectly?and?directly?play?a?role?in?the?achievement?of?all?the?17?SDGs,?based?on?the?current?global?scenario,?projected?estimates,?and?aligned?goals,?windfall?taxes?can?especially?be?helpful?in?the?achievement?of?the?following?SDGs:
8. The Way Forward
Multiple?countries?and?international?organisations?are?proposing?the?imposition?of?windfalltaxes?and?similar?fiscal?measures?to?fairly?deal?with?the?energy?crisis?and?support?the?affected?masses.?However,?currently?the?scope?of?the?measure?is?short-term?and?industry?specific.?Additionally,?the?conversation?around?the?role?of?windfall?tax?as?a?mechanism?for?supporting?the?achievement?of?SDGs?is?fairly?sporadic?and?further?research?and?dialogue?is?required?in?this?area.
Some?suggested?methods?to?build?windfall?tax?as?a?more?permanent,?effective,?and?usefulmechanism?in?our?economy?such?that?it?works?towards?global?sustainable?developmenthave?been?outlined?below:
8.1.?Long-term?policy?focus:
It?is?essential?to?ensure?that?the?taxation?system?is?not?ad-hoc?and?is?built?into?the?long-term?policy?of?the?government.?In?the?long-term,?work?must?be?done?at?the?global?level?to?implement?permanent?windfall?taxes?that?capture?all?excess?profits?and?redistribute?the?revenues?fairly?to?countries?where?companies?have?their?real?economic?activity?rather?than?funneling?them?away?in?tax?havens.
The?IMF?recently?suggested?a?permanent?coordinated?windfall?tax?that?targets?economic?rents?(defined?as?returns?in?excess?of?the?opportunity?cost?of?the?investment?–?this?means?an?amount?of?money?earned?that?exceeds?that?which?is?economically?necessary)?and?(b)?based?on?the?globally?consolidated?profit?of?multinationals?(global?profit?of?the?entire?group)allocated?to?countries?according?to?sales.
8.2.?Industry?focus?:
Currently,?the?windfall?tax?is?primarily?imposed?on?the?energy?sector,?with?some?countries?also?levying?charges?on?other?sectors?like?banking,?retail,?etc.?Countries?need?to?be?more?ambitious?and?identify?sectors?earning?super-normal?profits?wherein?application?of?windfall?taxes?shall?be?appropriate.?For?instance,?the?pharmaceutical?sector.?Oxfam?in?its?research?mentioned?a?future?of?windfall?tax?which?is?ambitious,?sector-wide?and?automatic.We?could?raise?more?than?1000?billion?dollars?globally?with?a?tax?of?90?percent?on?the?windfall?profit?of?1000?of?the?world’s?biggest?companies!
8.3.?SDG?aligned?utilisation?of?resources?:
The?resources?mobilised?through?windfall?taxed?need?to?be?utilised?in?a?clearly?stated?direction?and?should?be?redistributed?keeping?the?sustainable?development?goals?in?mind.?The?tax?policy?should?support?sustainability?and?due?care?should?be?taken?if?in?some?exceptional?cases?windfall?taxes?are?imposed?on?renewable?energy-based?electricity?generation,?as?it?can?be?counterproductive.?In?adapting?their?tax?policies?to?address?the?structural?challenges?they?face,?countries?should?put?growth,?equity?and?sustainability?on?an?equal?footing.
The?role?of?the?revenues?generated?through?windfall?taxes?in?helping?achieve?SDGs?byassisting?different?areas?of?need?have?been?outlined?below.
8.4. Short term :
Windfall?tax?revenues?can?be?channeled?to?those?areas,?countries,?and?people?who?are?most?affected?by?the?crisis?and?require?aid?on?an?urgent?basis.?For?instance,?the?Spanish?government?is?using?proceeds?from?the?windfall?tax?in?the?country?to?finance?free?train?tickets?to?address?their?cost-of-living?crisis,?provide?grants?to?a?million?scholarship?holders?at?schools?and?universities,?and?funding?for?12,000?homes?in?Madrid.
8.5. Long term :
In?the?long-term,?windfall?tax?revenues?can?help?tackle?the?biggest?challenges?of?our?times?like?the?explosion?in?inequality,?the?climate?crisis,?and?the?food?security?crisis.?Proceeds?canbe?used?to?not?only?respond?i.e.,?fulfil?commitments?in?terms?of?aid?and?addressing?issues,?but?prepare?–?strengthening?systems?to?enable?countries?and?populations?to?be?resilient.
9. Case Studies – Global Scenario of windfall tax
9.1 United Kingdom
A. Background
Owing?to?the?soaring?oil?and?gas?prices?globally,?the?oil?and?gas?sector?experienced?extraordinary?profits.?However,?the?cost-of-living?crisis?in?the?UK?was?exacerbated?due?to?the?exceptionally?high?prices?for?gas?and?power,?leading?to?the?introduction?of?the?energy?profits?levy.?The?levy?does?not?apply?to?the?electricity?generation?sector.
The?measure?was?introduced?in?May?2022?and?places?an?additional?tax?of?25%?on?the?profits?of?oil?and?gas?produced?in?the?UK.?The?gains?captured?by?the?government?shall?go?towards?funding?the?cost-of-living?crisis?through?subsidising?of?energy?bills.?The?measure?was?introduced?during?the?tenure?of?the?previous?prime?minister?and?the?current?government?has?announced?that?it?shall?not?impose?further?windfall?taxes?on?the?energy?sector.
B. Approach
The?UK’s?new?levy?on?the?oil?and?gas?sector?consists?of?a?25%?additional?surcharge?over?the?existing?taxes?on?profits?of?40%,?which?consists?of?a?30%?corporation?tax?and?10%?supplementary?charge.?This?totals?up?the?tax?on?profits?to?65%.?Companies?shall?not?be?able?to?offset?previous?losses?against?profits?subject?to?the?levy.?The?tax?comes?with?a?sunset?clause?i.e.,?the?levy?will?cease?at?the?latest?by?end?of?2025,?The?government?will?phase?out?thelevy?sooner?“if?oil?and?gas?prices?return?to?historically?normal?levels”,?however,?these?prices?have?not?been?specified?as?of?yet.
However,?this?tax?is?accompanied?by?an?“super-deduction”?style?investment?allowance?for?any?new?investment?in?oil?and?gas?extraction?in?the?UK?to?encourage?inflow?of?investments.?As?per?this?clause,?producers?can?discount?up?to?80%?of?the?capital?and?operating?expenditure?against?the?profits.?This?would?mean?that?businesses?will?overall?get?a?91p?tax?saving?for?every?￡1?they?invest,?providing?them?immediate?incentive?to?invest.
C. Impact
The?government?initially?expected?to?raise?￡5?billion?in?the?first?year?of?the?imposition?of?the?energy?profits?levy.?However,?the?latest?government?estimates?put?revenue?from?the?levyroughly?50%?higher?at?￡7.7?billion?for?the?2022-23?fiscal?year,?with?the?figure?set?to?exceed?￡10?billion?the?following?year.?The?revenues?are?estimated?to?then?reduce?each?year?until?the?end?of?the?2025,?when?the?sunset?clause?kicks?in.?The?UK?expects?to?raise?￡28?billion?in?the?coming?years?from?a?windfall?tax?on?oil?and?gas?firms,?as?can?be?seen?in?the?figure.?However,?it?should?be?kept?in?mind?that?the?total?amount?raised?will?depend?on?oil?and?gas?market?prices?and?shall?take?into?account?the?repercussion?of?the?investment?allowance?clause?on?the?tax?collection.
9.2 European Commission
A. Background
While?many?countries?have?already?introduced?windfall?taxes?in?their?economies?over?thelast?few?months,?as?discussed?earlier?in?this?research?paper,?the?European?Commission?hasonly?now?reached?an?agreement?regarding?the?emergency?measures?to?address?the?highenergy?prices.
The?price?of?electricity?in?EU?is?directly?linked?to?the?price?of?the?gas,?majority?of?which?is?imported.?With?disrupted?supply,?the?gas?prices?have?been?soaring?which?in?turn?has?impacted?the?prices?of?electricity.?The?regulation?and?measures?agreed?upon?by?EU?energy?ministers?cover?both?common?measures?to?reduce?electricity?demand?and?to?collect?and?redistribute?the?energy?sector's?surplus?revenues?to?final?customers.?This?paper?shall?be?focusing?on?the?latter?and?shall?detail?EU’s?take?on?windfall?taxes.
B. Approach
The?measures?outlined?by?EU?are?essentially?windfall?taxes?–?in?practise,?if?not?in?name.?Themeasures?are?temporary?in?nature?and?shall?be?applicable?from?1st?December?2022?to?31st?December?2023.?The?member?states?are?allowed?to?introduce?some?flexibilities?basis?their?circumstances?which?includes?the?possibility?to:
The?key?fiscal?measures?consist?of?the?following?actions,?in?addition?to?the?curbingelectricity?demand.
C. Impact
EU?ministers?estimate?that?they?can?raise?about?€140bn?(￡123bn)?from?the?levies?on?non-gas?electricity?producers?and?suppliers?that?are?making?larger-than-usual?profits?from?the?current?demand.?EU?has?proposed?that?the?revenue?collected?should?go?towards?supporting?vulnerable?people?and?companies?to?help?them?adapt?to?the?increase?in?prices?and?invest?in?clean?home-grown?energy?sources?and?decarbonisation?technologies,?like?renewable?energy.?Revenue?will?be?funnelled?to?consumers?and?companies?to?cushion?the?impact?of?high?energy?bills,?and?to?invest?in?green?energy. ?The?EU?members?shall?be?required?to?collect?revenues?from?aforementioned?companies?and?redistribute?them?to?hard-hit?citizens?and?companies.